These investments would not be calculated as part of a bank’s adjusted non-food bank credit while assessing the priority sector commitment.

More on the news

RBI had specified that under the TLTRO 2.0 scheme, banks will have to invest at least half the total funds in bonds of small NBFCs of asset size of ₹500 crore and below, mid-sized NBFCs of asset size between ₹500 crore and ₹5,000 crore, and MFIs.

Banks currently have to allocate 40% of their total loans to sectors like agriculture, small businesses, education, social infrastructure, among others, collectively known as priority sectors.

This exemption is only applicable to funds availed under TLTRO 2.0 and RBI expects that this will incentivize banks investment in these NBFCs and MFIs.

Long-Term Repo Operations

About

The LTRO is a tool under which the RBI provides one-year to three-year loans to banks at the prevailing repo rate.

As banks get long-term funds at lower rates, their cost of funds falls.

In turn, the interest rates for borrowers are reduced .

All in all, LTRO facilitates RBI in ensuring that banks reduce their marginal cost of funds-based lending rate, without reducing policy rates.

Targeted long-term repo operations (TLTRO)

About

The TLTRO was introduced by the RBI.

Under TLTRO, banks can access three-year funding and use it to invest in investment-grade corporate bonds, commercial paper, and debentures.

Of this, banks are required to buy up to 50% of their incremental holdings of eligible instruments from primary market issuances and the rest from the secondary market, including from mutual funds and NBFCs.

LTROs are conducted on e-KUBER platform that is the Core Banking Solution of RBI.

Significance of TLTRO

It was introduced by the RBI to help companies, including financial institutions, resolve their cash flow problems in the wake of the coronavirus outbreak and imposed lockdown.

Priority Sector Lending

PSL was introduced with an objective to ensure access to credit, adequate flow of credit to employment intensive sectors like agriculture and MSME, especially for vulnerable sections of society.

Priority Sector Lending Certificates (PSL-Cs) were introduced in 2016 to support comparative advantage of different banks in their respective areas of specialization.

Archaeologists using LIDAR Technology amidst Lockdown

Bankruptcy code gets suspended for 6 months

Close to 28% of Sunderbans damaged by Cyclone Amphan

Get connected with us on social networks!

Jatin Verma's IAS Academy

Jatin Verma's IAS Academy is an online platform to assist students in pursuing their dream of becoming a civil servant. We are dedicated to acquaint aspirants to the contemporary pattern of UPSC CSE and provide them with personalised mentorship as well as knowledge base enrichment.